The Prehistoric Super Cycle
Doctor Dinero's Discussions
email: thedoctordinero@yahoo.com
March 12, 2004
In this essay, I plan to explore the effects of energy on the current super cycle and try to derive some wisdom that may help me with my investments (if that is even possible given my low intellect).
Let's step back and take a look at our planet (you know, that blue orb called Earth). It is a contained system which receives energy from the sun. Plant life stores solar energy as chemical energy. (Oil, coal, and natural gas are the end result). The earth also radiates energy (primarily heat) to space to balance the system out (The greenhouse effect reduces the amount of energy that would be radiated to space). Animals (us humans too) consume the stored energy (plants and other animals) and release heat into the system which increases the rate the earth radiates energy into space. The system has to be balanced (unlike the US Federal Budget, but that is a whole another topic).
During the prehistoric ages (many many millions of years ago), the sun delivered energy to earth and the earth radiated an amount back to space as heat. The left over energy was stored in the plants. Over the eons, the dead vegetation and uneaten dinosaurs became oil, coal, and natural gas. (In essence, they became stored chemical energy, to be used later). Populations of animals would grow during periods of global warming (do to the abundance of plant life) and decrease during cooler periods (less vegetation to support the ecosystem, try planting tomatoes in snow).
The Ice Ages are a great example of earth energy balancing. A large portion of the Earth's surface was covered in snow which reflected the energy back into space as solar energy (that is why sun glasses are very popular with snow skiers), minimizing the amount that could be turned into heat or used by plant life. I have read that several global climate models come to a stable solution in which the earth is covered in ice and all energy is reflected into space. (No energy absorbed equals no life on earth, makes sense from an energy balance perspective). However, I think that event is many millions of years away (or longer) and worrying about it distracts from this article. (It would be like worrying about the sun exploding, if it does, would you know?).
During early civilization (prehistoric man), we were subject to Earth's warming and cooling trends to limit population growth. Then we started to harvest animal energy for farming techniques, which allowed the earth's population to increase some more. With the discovery of coal as an energy source, this initiated another step change in population growth. Finally oil, has enable the greatest population expansion in human history. What modern civilization has done is convert the Earth's stored chemical energy (built up over the life of the earth), so we could increase our population today. How long can the stored energy reserves last?
Followers of Peak Oil believe that we are at a junction in history where oil levels will plateau and then decline. When analyzing oil reserve data, you will notice that all OPEC countries had a huge jump in reserves (I think it was around 1980). After that time, OPEC determined a member country's production quota on its reserves (the more reserves the more that country could produce). I believe the OPEC reserve data is flawed (I also find it interesting that Shell and El Paso Energy recently had to restate reserves lower. Their motive to increase reported reserves was to support higher stock prices. The motives of OPEC and the recent offenders could be condemned as greed). Industry insiders believe that the Saudis have lost their ability to be the swing producer. (Hence the OPEC production cuts, to maintain the appearance of control, which is important to market stability). Meanwhile, world wide demand for oil is steadily increasing, especially from Asia (China), as the human population continues to increase, and the global desire to have a higher standard of living. All this builds a strong case for oil to continue to rise in value.
Now on to Elliot's Grand Super Cycle Wave 4 (I think that is what it is called), which many postulate that it started in 2000. Wave 4 is a big bear wave which should last around 60 years (give or take). For ease of discussions, I am going to use a 20 year bear wave (which started in 2000), then we will have a 20 year bull wave, and the final 20 year down wave to the bottom. SO WHAT DOES THIS MEAN! It means that if you are in your 50's and 60's you will have a rough retirement. If you are in your 30's and 40's, you will be robbed of some of your more productive years and will have to work through your retirement. If you are younger than 30, you will most likely be drafted for the coming oil wars (the first major battle was US's acquisition of Iraq).
Looking at the current world wide situation, where energy demand now equals energy supply, then world wide population must level out TODAY and decrease as oil production declines. Many believe that we can offset this decline with better insulation and conservation. Each conservation initiative will have to be judge with an energy balance, are we spending more energy than saving. (Does the energy going into the fabrication of the insulation plus its installation exceed the energy saved? I know the current manufacturing of solar panels consumes more energy than they produce). One way to increase available energy would be to welcome global warming. (But that would bring about its own problems, and is a whole other topic). I believe the current 20 year bear wave will be dominated by the fight for energy (Oil in particular). During this first bear wave we will have some population die off (famine and war), which will put the world in an energy surplus for the upcoming 20 year bull wave. The last 20 year bear wave will be quite dramatic (traumatic). What gives me hope? Once wave 4 is done, a new bull wave 5 will be born. I predict a new type of energy will be developed that will enable humanity to reach new heights. (If not, then our wave counts were wrong, and we just finished Wave 5, and, and, and, I do not want to think of that possibility).
As oil demand exceeds supply, buying oil calls and equities may be good investments. In the future, I plan to invest in the new company that develops this new type of energy (if I live that long). These companies will be the next bubble in the stock market (like tech, autos, and railroads of the past).
Only time will tell what really comes our way. I write these articles to maintain my sanity (shrink's orders) and hope to open a few peoples' eyes. Unfortunately, sometimes when I write these articles I freak myself out, requiring another trip to the shrink (burning precious energy), who tells me to take my meds (which is probably shortening my life) and write another article (which I am doing). I think he is getting rich off the deal; hopefully he listens to me and buys gold and silver. What is that definition of insanity; doing the same thing over and over again, expecting different results.
Cheers,
Doctor Dinero
March 12, 2004
email: thedoctordinero@yahoo.com
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